PDVSA, The Dispassionate Story

By Luis A. Pacheco

05.05.06 | The Energy Tribune has run several pieces on Venezuela and PDVSA and I feel the dispassionate story must be told. When PDVSA was created in 1975, as a result of the nationalization process, there was a natural apprehension that it would follow in the steps of all the other failed Venezuelan state enterprises. Against the grain, the company evolved – from a loose coalition of E&P companies into a major integrated oil company and a relevant factor in the world energy scene – through a succession of governments.

But that evolution was not without its price – a very important political price. The technical and commercial success of PDVSA left in its wake a number of tense situations. For example, the OPEC quota policy was always a contentious issue between Venezuela’s oil ministry and the company. But there were other sources of irritation: among them, the salaries of oil workers, the investment overseas, and the debate on what to do with its generated revenue. Most of these issues were never resolved to the satisfaction of the political establishment, and they re-surfaced years later with a vengeance.

Of course, this is all hindsight. The PDVSA managers were raised in an environment that strived only for technical prowess and were ill-equipped to be sensitive to the potential political nuances of their activities. In modern management speak: PDVSA was not very adept at managing its stakeholders. In turn, there is no doubt that the political actors cared very little about understanding the details of the oil industry, so long as it was generating enough revenue.

The success of the “Apertura” (the opening up) strategy in the 90s, which allowed the controlled participation of the international oil companies in the upstream business, gave Venezuela access to capital and technology. And that technology was necessary to fulfill the potential of its huge hydrocarbon resource base. The Apertura helped thrust PDVSA into a competitive environment, which was instrumental in counteracting the inevitable inefficiencies resulting from its legally designated isolation. All of these events created political friction.

When President Hugo Chávez came into office in 1998, he did not arrive alone. He brought with him a prejudiced opinion about the oil industry and its workers, borne from all the previous tensions and misunderstandings, and he was accompanied by a cadre of PDVSA’s historical enemies. Not surprisingly, the PDVSA establishment was apprehensive about its new political masters. These two forces were bound to clash sooner or later, and after some skirmishes, the tensions exploded destructively in the widely reported but little understood PDVSA crisis that boiled up in the spring and winter of 2002.

PDVSA is no longer the proud company that it once was. Thanks to the firing of more than half of its workforce, it has lost its former vitality. As modern economists and managers have come to understand, the soul of any corporation, in particular one as complex as PDVSA, resides in its people and their expertise. Without that, no modern organization has a sustainable future.

Surprisingly, the PDVSA name still remains. The oil keeps flowing, although at a steadily decreasing rate. The people left inside, old and new, still retain their spirited hubris. It comes with the territory. But the life force of the organization has been irretrievably lost. Today, PDVSA is little more than a political tool in the hands of the shrewdest political operator Venezuela has ever known, and a blunt instrument with regard to the future of the Venezuelan oil industry.

After more than 80 years of oil industry, Venezuela has not yet discovered how to live harmoniously with it. From unrestricted private participation to unbridled state intervention, we have not managed to grow beyond the primitive stages of rent-seeking behavior. Sooner or later, the state-owned enterprises are bound to fail, either through inefficiency or as victims of political expediency. PDVSA will not be an exception.

The company is like a wounded giant, dizzy and without a sense of direction, running around in circles. It appears to be incapable of moving forward under this or any other government. Sadly, it doen’t seem that the story will have a happy ending. The state has proven to be an incompetent manager of the oil resource. Venezuela has to start thinking anew, while there is still time left for its oil.

Luis A. Pacheco earned a Ph.D. in mechanical engineering from the Imperial College, University of London. He then worked at PDVSA for 17 years, leaving in 2003 after serving as the executive director for corporate planning.